Change coming in health care tax

November 29, 2011

HOUGHTON - A new Michigan tax on some health insurance claims has at least one local business concerned they will be facing an increase in costs for the insurance they provide.

On Sept. 20, Gov. Rick Snyder signed the law, which replaces the current 6 percent use tax for Medicaid health maintenance organizations and prepaid inpatient health plans with a 1 percent tax on some health care insurance claims for patients in Michigan. It goes into effect Jan. 1 and will be used to support the state's Medicaid program.

The new tax applies to self-funded health care plans and health insurance carriers operating in Michigan.

Rene Hiller, director of benefits in the human resources office at Michigan Technological University, said before the new tax was initiated, Tech paid no taxes on health care insurance. Now, it's expected the 1 percent tax will cost the university more.

"We're projecting about $140,000 more for the tax next year," she said.

However, Hiller said the new tax applies only to health care received in Michigan.

"If we had an employee go to Wisconsin (for health care), it wouldn't apply," she said.

Hiller said Tech provides two types of health care insurance for its employees, Husky Care, which is a preferred provider organization insurance, and Husky Health Savings Account, which has a high deductible.

"We're self funded," she said. "We pay all the claims for our employees."

The new 1 percent tax will be in effect until 2014, and Hiller said she doesn't know what, if anything, will replace it.

On his website, Snyder wrote the change to the 1 percent tax on some health care services will ensure the state will continue to get more than $780 million in federal funding to make certain low-income residents get needed medical care.

"I'm proud we were able to preserve Medicaid funding at a time when the state is facing significant budget challenges," Snyder wrote. "The fact that we did not cut Medicaid funding shows that Michigan is committed to protecting our most vulnerable residents. This also brings Michigan in compliance with federal rules."

Out-of-pocket expenditures by individuals, such as co-payments and deductibles, will not be taxed, Snyder wrote.

Since the new law doesn't prohibit insurance providers from passing some of the cost onto their employees, Hiller said there will be an increase in out-of-pocket expenses for Tech's 1,300 employees, who have been informed of the change.

"That's part of the increase," she said.

Exactly what an employee may pay out of pocket varies, Hiller said.

"It depends on the care they get," she said. "Every person is different."

There has been some negative feedback from Tech employees about the change in out-of-pocket costs, Hiller said, but she wasn't surprised by it.